In the London session on Wednesday, the Pound Sterling (GBP) grapples with challenges to sustain its recovery above the 1.2580 mark. Despite the United Kingdom’s Manufacturing PMI showing a return to growth, caution prevails among investors as they await the release of the United States Nonfarm Payrolls (NFP) data for March.
The surprising expansion of the UK Manufacturing PMI in March, ending a 20-month contraction streak, was primarily fueled by robust domestic demand for consumer goods. S&P Global/CIPS reported a surge in business optimism to its highest level since April 2023, with a notable 58% of manufacturers anticipating increased production levels over the next year. The agency attributed this optimism to several factors, including stronger demand, new product launches, improved trading conditions, export opportunities, and hopes for a resolution to supply chain disruptions.
The trajectory of the GBP/USD pair throughout the week will be heavily influenced by developments in the US labor market and market sentiment regarding potential interest rate adjustments by the Bank of England (BoE). Expectations for rate cuts have shifted forward to the June policy meeting following softer-than-expected UK inflation data in February.
The Pound Sterling’s movement is also under scrutiny amidst anticipation of Federal Reserve Chairman Jerome Powell’s speech and the upcoming US NFP data release. Investors are keen to decipher clues regarding the timing of potential interest rate adjustments by the Federal Reserve, with current expectations leaning towards a reduction in borrowing costs starting from the June meeting.
Technical analysis indicates that the Pound Sterling faces resistance near the 1.2580 level, struggling to maintain momentum above the 200-day Exponential Moving Average (EMA) around 1.2570. The horizontal support at 1.2500 from December 8 offers a potential cushion for GBP, while upside movement is likely to be capped around the eight-month high of approximately 1.2900.
The Relative Strength Index (RSI) indicates a dip below the 40.00 threshold, signaling potential bearish momentum if sustained below this level. As such, market participants remain cautious amidst ongoing developments, awaiting further cues from key economic indicators and central bank communications.
